Rabobank expects the 2020/21 farming season for the Australian agriculture sector will be a profitable one and this would be good news for some ASX agriculture stocks.

The agribusiness bank released its annual Agribusiness Outlook last Friday in which it predicted the sector will shrug off trade tensions with China.

The sector began 2020 on a sour note with unfavourable weather conditions – made worse by the bushfires. Many also suffered by falling demand due to COVID-19.

But 12 months on, the outlook appears rosier for the agriculture sector and by extension the ASX stocks involved in them.

“In a current global environment marked by the pandemic, political tensions and trade wars, demand for food and agri products has remained unexpectedly strong,” said Rabobank’s head of Food & Agribusiness Research Tim Hunt.

“And despite the punitive actions of China on Australian agriculture, high agricultural commodity prices, low interest rates and positive seasonal conditions are underpinning a positive outlook for most farmers in 2020/21.”

 

Dairy, wheat and feed grain to do well

Among the commodities tipped to perform the strongest were dairy, wheat and feed grain.

The report said in the dairy sector there was “strong cause for optimism that profitable market setting[s] will extend into the 2021/22 season”.

There’s no shortage of dairy stocks on the ASX and those that anticipate a profitable year ahead but 2020 was a mixed experience.

For the most part stocks reported demand remained firm but investors became spooked by trade tensions with China – even market giant A2 Milk (ASX:A2M) couldn’t escape unscathed.

As for feed grain and wheat, Rabobank predicted strong global demand would support prices in the year ahead.

Two ASX agriculture stocks in these sub sectors are Duxton Broadacre Farms (ASX:DDF) and Graincorp (ASX:GRN). Both have seen a mixed 12 months but are slightly ahead of where they were at this time last year.

The latter stock has benefited from a bumper crop season due to the favourable weather – with harvest deliveries between it and unlisted peer Viterra peaking at 18.5 million tonnes (Mt) per week.

Another commodity marked for good things was cotton with Rabobank tipping a “sharp recovery”.

One pureplay ASX stock is Namoi Cotton (ASX:NAM) which was terribly hit by the drought conditions last summer.

 

Sectors facing a mixed outlook

Rabobank was not purely bullish on all commodities. It noted 2021 would be “a rebuild year” for beef with conditions ideal for more breeding but slaughter would be reduced.

One of the few ASX agriculture stocks affected is Wellard (ASX:WLD) which is Australia’s largest exporter of live produce, including beef.

As for wine, Rabobank tipped pandemic-related disruptions to continue but the wine price would be supported by trade tensions with China.

Large cap Treasury Wines Estates (ASX:TWE) was heavily hit by Chinese tariffs but small cap Digital Wine Ventures (ASX:DW8), which has an ecommerce platform and no reliance on China, saw a solid year as wine trading moved from the bottle shops to online.

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